SCOTTISH Widows has become the latest insurance company to cut its bonus payouts to its with-profits savers.

The group, part of Lloyds TSB, blamed stock market falls for its decision to reduce rates, which come in the wake of recent similar cuts by Norwich Union and the Britannic.

And Adrian Shandley, managing director of Premier Wealth Management, warns the pain may not be over for north west investors.

"Scottish Widows will not be the last of the insurance companies to cut its with-profits bonus rates, or, indeed, withhold bonuses totally, as was the case with Britannic," he explained. "With-profits is not only an outdated form of investment, it is also probably unsustainable."

Investors, he believes, should, therefore, get advice on other options, including alternative unit-trust based investments.

Investor gloom

"Britannic's additional decision to withhold the final dividend from its shares, and the resulting fall in the company's share price obviously leaves it open to a takeover, which could be further bad news for investors."

Mr Shandley believes the dramatic move away from endowment savings products such as mortgages, which are usually invested into with-profits funds, is behind the current problems facing investors.

"Most insurance companies have experienced a significant fall in revenue over recent years. This, coupled with the fact that stock markets have gone down for three years, yet insurance companies have continued to pay bonuses, has led to a cash crisis for with-profits funds.

"In addition to with-profits savings products, with-profits bonds were also popular with investors.

"These are lump-sum investments that pay a regular return, on which many people rely for income. However, these bonds also face drastic bonus cuts."

The basic problem with any with-profits investments, he says, is that they are not transparent. Therefore, investors never know how much the insurance company has made, or how much they have withheld in charges.

"Unit-linked investments, on the other hand, while capable of falling or rising in value, are always transparent. Investors know exactly how much money has been made or lost.

"Unless there is significant reform in light of the recent Sandler Report, there is no future for with-profits investing.

"With-profits bonds are certainly not the safe option that many people perceived them to be, and investors need to act now."